Skip to main content

Commercial mortgage deals made simple

National Mortgage Professional
Aug 14, 2007

Getting the most out of your LOSChris Nelsonloan origination system, internal assessment, selection, cost, maximizing Efficiency, profitability and sustainability -- these terms are the cornerstone of any business model, but they especially hold true for mortgage lenders seeking systems to help originate loans quickly, cost effectively and with consistent volume. For a financial institution to be successful in the mortgage sector, it needs to select a loan origination system (LOS) that aligns with its organizational goals. The following are some best practices on how to be sure your new LOS will meet your needs. Internal assessment Before shopping around for the best LOS, it is important for a financial institution to take a look inside its own organization. Based on your business model, which aspects of an LOS are most relevant to your institution? For larger institutions, scalability, automation, flexibility, customization and efficiency may be top priorities, while smaller institutions may place greater emphasis on access to multiple lenders and the ability to design loan packages tailored to individual consumers. Reliability, security and compliance are valued by all sizes of institutions, but their definitions of these capabilities may be different. For example, a smaller institution may not be concerned if their system is down for a 24-hour period, but for larger institutions, a few minutes of downtime is unacceptable. An organization must also examine and understand its market, its customers' needs and the market growth potential. The goal is to balance your business model with the cost of an effective solution. The rewards will be the ability to originate the most quality loans using the least amount of internal resources and an increased bottom line. Selecting the right LOS There are plenty of choices in the LOS market, whether they are broker-based solutions or more advanced solutions for large institutions. Additionally, there are a number of packages used in the international space with greater flexibility, but they have not gained much traction in the United States. It is important to recognize the right amount of functionality, customization and automation required to support your business model. Smaller mortgage companies rely on customer relationships and marketing far more than automation and efficiency, so investing in a new LOS may not be necessary. A tailored solution with extensive flexibility is seldom appropriate under these circumstances. On the other hand, most large financial institutions are using much older systems, often with numerous modifications, built around systems that are no longer supported and require extensive maintenance. The ability to adapt quickly or make significant changes to these systems is almost nonexistent. While some of these systems are capable of keeping up with the basic needs of loan origination today, many are missing key components. This leads to a patchwork of solutions built atop one another -- often becoming an Internet technology (IT) support nightmare -- as generations of programmers developed the platform. While the cost of IT maintenance on a current LOS may seem inordinate at times, the effort to replace the entire infrastructure is an enormous undertaking that most institutions are struggling to justify. Understanding cost It is also important to assess the total cost of ownership that reflects not only the cost of purchase, but all future aspects of use and maintenance for the LOS being considered. This can include the costs of training support personnel and the users of the system, costs associated with failure or outage (planned or otherwise), diminished performance incidents, development expenses and much more. Another factor to consider is the cost to replace a system that doesn't meet your business needs. I am aware of a financial institution that signed on with an LOS vendor for a free system. After six months and hundreds of thousands of dollars invested, the system was not performing as expected. The bank had to purchase a new solution with only three months left before the holiday rush. Even though the new system's upfront costs were slightly higher than free, over the long term, the bank experienced tremendous savings and profitability. With the new system, it was able to double its application volume without additional staff. The market is continuously changing, and so the needs of mortgage originators are constantly evolving. Originators need to be able to address fundamental conceptual changes to the way the market is behaving and apply such changes to their loan products. The issue then becomes how to invest in an LOS solution that is simple, easy to use and adaptable to company changes and shifts in the mortgage industry without programming changes. Is it possible to have the best of both worlds? The best of both worlds As far as processing loan data, many companies continue to use systems in which many steps are still handled manually. It is not that technology does not exist to make more of the system automated; rather, many mortgage companies cannot seem to justify the costs of complete automation. Straight-through (or fully automated) processing systems address this need, but create a new problem when manual reviews are required by law or business policy. Newer LOS platforms that allow applications to move seamlessly between automated and manual workflow solve both of these problems. The system will notify you when manual intervention is necessary and return the application to the automated workflow once the manual process is complete. This greater flexibility can lead to better quality assurances and increased efficiency, as well as more control over the originator's work process. Oftentimes, when systems only allow for limited flexibility, terms or conditions need to be manually added later. This can mean time and money wasted. Maximizing your current LOS Replacement of an entire LOS may be too big or risky for many institutions. There are solutions available on the market today that can be integrated with existing systems to provide many of the benefits of replacement with a lower risk and cost. The modular design allows components to be replaced without removing the entire system. This is accomplished by weaving solutions together through an automated workflow. As a result current operations are maintained and enhanced. The benefits of a modular approach include the ability to adapt to market changes in real time, a user friendly design that allows changes to be made without programmers and a focus on business needs rather than technology. A challenge we have seen and addressed in the industry is the need for originators to have direct control over the newly enhanced LOS and the ability to implement changes in real time. Using an LOS with such enhanced components greatly decreases risk exposure, especially when the components are seamlessly integrated from end to end in a cohesive automated process. The ability to link to a wide variety of data sources helps contribute to as automated of a process as possible and allows the LOS user to process all information more efficiently, smoothly and securely. Conclusion A well designed LOS has proven to be a worthwhile investment and a powerful tool for increasing productivity, providing better customer service and allowing for greater flexibility -- all while driving overall consumer revenue. Chris Nelson is CEO of Zoot Enterprises. He may be reached at (406) 586-5050 or e-mail [email protected]
Published
Aug 14, 2007
MBA Initiative Seeks To Close Racial Homeownership Gap

Says its advocacy, partnerships & connections will help increase opportunities for minority borrowers

Industry News
Sep 24, 2021
Guaranteed Rate Opens New Branch In Southwestern Michigan

Guaranteed Rate expanded its presence in Southwester Michigan, after opening a new branch in St. Joseph

Industry News
Sep 22, 2021
Chinese Property Giant Evergrande Falters, Threatening U.S. Investors

On Monday, investors across three continents dumped their stocks, mainly out of fear that the world’s two largest governments — the United States and China — would undercut the beginnings of a global economic recovery. 

Industry News
Sep 22, 2021
Compass Mortgage Expands In Four Additional States

Compass Mortgage is now licensed in Virginia, Washington, North Carolina and South Carolina.

Industry News
Sep 22, 2021
Enact Holdings Completes IPO

Genworth Financial Inc. announced the completion of the initial public offering for its subsidiary Enact Holdings Inc.

Industry News
Sep 21, 2021
Offerpad Expands Into Kansas City, St. Louis

Tech-Enabled Platform For Real Estate Transactions Now In 20 Markets

Industry News
Sep 20, 2021